Fund managers increase stake in auto stocks despite supply issues
MUMBAI : Domestic fund managers have increased their exposures to the auto sector by betting on robust festive demand despite the supply constraints plaguing auto companies this year. The weighting of auto stocks by mutual funds climbed to 6.1% in September, according to data from the top 20 national mutual funds. This marked a rebound after a two-month sell-off, with mutual fund exposures falling to a 17-month low of 5.9% in August.
Data from the Association of Mutual Funds in India (Amfi) and NAV India and analyzed by Motilal Oswal Financial Services Ltd showed automotive stocks to have weightings of 5.9%, 6.2% and 6.5% in August, July and June, respectively.
A global shortage of semiconductor chips has hit automakers hard, forcing them to cut production sharply. The leading automaker, Maruti Suzuki India Ltd, has cut production for three consecutive months and said its total production this month will be 60% of normal production. Maruti reduced its production by 60% in September.
The severe chip shortage resulted in a 41% year-over-year drop in wholesale sales or factory shipments of passenger vehicles last month, the Company of Indian Automobile Manufacturers (Siam ).
Analysts are however betting on a revival of the sector driven by festive demand.
Channel checks by Emkay Global Financial Services Ltd have shown that order bookings are extremely important for passenger vehicles with a waiting period of up to six months for top-selling models. “Dealers expect a moderate holiday season due to supply constraints. Dealer inventory levels are low at 1-2 weeks. Assuming supply issues persist, dealers could be out of stock by the end of October for passenger vehicles, ”analysts at Emkay Global Financial Services Ltd. said.
Highlighting the risk of vehicle supply constraints affecting sales over the coming holiday season, Nomura said this would likely result in reduced discounts. “Investors have questioned whether lower discounts due to chip shortages could positively benefit Original Equipment Manufacturers (OEMs) margins. In our view, in the short term, this may support gross margins. For OEMs who do not have significant production cuts, the overall EBIT may be higher. In the long term, we expect the supply to normalize, as will the discounts. So we continue to focus on underlying demand, market share performance and model cycle, ”Nomura said.
Overall in September, the Nifty Auto Index gained 5.62%, recovering from declines of 0.14% and 5.21% from the previous two months. In October so far, the index has gained 11.37%.
Besides autos, mutual funds increased their exposure to oil and gas, autos, real estate, PSU banks, consumer durables and retail in September. At the same time, net inflows to equity mutual funds fell 20% sequentially in September despite record contributions from systematic monthly investment plans (SIPs). According to Amfi data, the action plans received net inflows of ??6,456.38 crore in September, falling from ??8,056.80 crore in August. Total outputs via totalized SIPs ??10,351.33 crore in September, compared to ?? 9,923.15 crore in August.
“Over the past several months, participants are withdrawing money in a lump sum at maximum valuations while new / existing investors continue to demonstrate long-term confidence by increasingly contributing to equities in a phased fashion through the SIP path, ”said Abhilash Pagaria, analyst at Edelweiss Securities. .
According to research from Edelweiss Securities, Max Healthcare Institute, HDFC Bank, SBI Life Insurance, SBI Cards and Payments and Axis Bank were the top five stocks bought by mutual funds in September.
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